Asean boom, strong tie-ups fuel E&O's growth

THE Asean region presents immense opportunities for Kuala Lumpur-based premier lifestyle property development group Eastern & Oriental Berhad (E&O), as populations in the region become increasingly affluent and the emerging middle class continues to burgeon. This is also the time in a country's development cycle that its people can afford to invest in property overseas, which benefits E&O. Already, the Bursa Malaysia mainboard-listed developer has seen the growth of the Asean market reflected in its buyer profile. Thirty per cent of its foreign buyer segment comprises Singaporeans, while close to 12 per cent of the foreign buyers of its properties in Penang are Indonesians.

Kok Tuck Cheong, managing director of E&O, says: "Singapore, and to a growing extent, Indonesia, are important foreign markets due to various reasons, with geographical proximity and cultural affinity being the predominant ones.

"These two markets, as well as other burgeoning Asean economies, will be on our radar as we continually review our property development and marketing strategy in tandem with the changing market environment.

"At the same time, we will continue to nurture the inroads that we have already made to markets in other countries such as Japan, Hong Kong, China, Australia, Canada, and the United Kingdom."

The group's projects are currently spread across Kuala Lumpur, Penang, Iskandar Malaysia and the UK. One project it is currently focused on is the development of its award-winning seafront master-planned development Seri Tanjung Pinang (STP).

As a whole, the 240-acre residential enclave - the first phase of STP - started as a reclamation project that was partially completed and left idle for several years in the late 1990s.

It was only in 2003 when E&O took over the project that its progress gained steam. Within two years, the developer completed the reclamation works and in the same year, it launched the first courtyard terraced homes called Ariza.

For the first phase of STP, E&O worked with internationally acclaimed hospitality concept architects Wimberly Allison Tong & Goo from Seattle and Malaysia's acclaimed architectural firm GDP Architects. The first phase is fast coming to completion, which will bring the group to the second phase very soon.

Here is where E&O's track record of partnerships with industry giants has lent it a boost. Earlier this year, E&O signed a partnership agreement with Kumpulan Wang Persaraan Diperbadankan (KWAP), or Retirement Fund Inc, to take on the second phase of the STP development project. Reclamation works are currently underway for Phase 2A of STP2 (STP2A), which will cover 253 acres, as well as 131 acres off the Gurney Drive foreshore which E&O is reclaiming at its own cost for the Penang State Government. The partnership will see KWAP pumping capital into the sea-fronting STP2A development project and also take up a substantial stake in the project.

KWAP is Malaysia's second-largest pension fund. E&O said in end-March this year that it will dispose of 20 per cent of Phase 2A of the development land to KWAP for RM766.02 million (S$246 million) in cash. Proceeds will be used to cover reclamation and infrastructure costs, as well as other working capital and repayment of borrowings for the project.

In the same announcement, it said that both sides have also signed a joint venture (JV) agreement to develop the entire STP2A development land through a special purpose vehicle which will be 80 per cent owned by an E&O subsidiary, and 20 per cent owned by KWAP.

In Kuala Lumpur, E&O also has two ongoing JV projects with Mitsui Fudosan, Japan's largest real estate developer. The Mews Serviced Residences is slated for completion at the end of this year. Not far from it is E&O's Conlay project, the second JV project with Mitsui Fudosan, which is currently at the conceptualisation and design stage.

Besides these, E&O has also partnered Malaysian sovereign wealth fund Khazanah Nasional Berhad and Singapore's state investment fund Temasek Holdings on Avira, a 207-acre project further down south in Iskandar Malaysia, Johor.

Performance-wise, E&O has grown its topline 67 per cent to RM704.8 million from RM422.2 million a year ago. Net profit also more than doubled to RM87.6 million from RM37.2 million a year ago.

Looking ahead, Mr Kok said the group remains "cautiously optimistic" on the prospects of the property development sector in Malaysia.

"Buyers' and investors' sentiments are expected to remain muted given the continued tight mortgage financing environment, coupled with the uncertainties surrounding global economies. However, positive demand for properties may be supported by the depreciated ringgit which lowers the cost of entry for foreigners and Malaysians working abroad.

"The group is cognisant of the cyclical nature of the property market which calls for a longer-term perspective to be taken. In time, given the strong fundamentals of the Malaysian property market and its proven resilience, the market should consolidate, with confidence gradually returning."